AT&T merger doesn't look good for consumers

The latest in a string of acquisitions effectively restores Ma Bell to her former girth yet allows the company to operate in a looser regulatory environment.

When the Bell telephone system -- a.k.a. AT&T -- was broken up in 1984, consumers were told this would be a good thing because it would increase competition.

When the U.S. telecommunications market was deregulated in 1996, consumers were told this would be a good thing because it would increase competition.

And now AT&T is planning to merge with T-Mobile, the latest in a string of acquisitions that in effect restores Ma Bell to her former girth yet allows the firm to operate in a looser regulatory environment.

Consumers might wonder if they've been played.

"There's no way this latest merger can be good for consumers," said Sally Greenberg, executive director of the National Consumers League. "This places a lot of power in the hands of only a few companies."

That's not how AT&T's chief executive, Randall Stephenson, sees it. He said the $39-billion deal with T-Mobile would create "significant customer, shareowner and public benefits" that would "better meet our customers' current demands."

The reality, however, is that the most competitive segment of the telecom market -- wireless service -- will now have one fewer player, and we are a big step closer to a marketplace controlled by only two companies, AT&T and Verizon.

The AT&T-led Bell system in effect controlled phone service in the U.S. from 1877 to 1984. What's particularly galling is that for years the descendants of the Bell system insisted that they had no intention of re-creating the old network.

In 1998, Ed Whitacre, then CEO of telecom giant SBC, addressed wary senators in Washington about his company's planned $72-billion acquisition of rival Ameritech. He acknowledged concerns that "SBC and Ameritech have set out to turn back the clock and re-create the old AT&T Bell system." It won't happen, Whitacre testified. "The competition genie is out of the bottle," he said.

SBC went on to purchase AT&T for about $17 billion in 2005 and subsequently assumed Ma Bell's name. In 2006, it snatched up BellSouth for $67 billion.

Meanwhile, Bell Atlantic merged with GTE in a $65-billion deal to form Verizon, which in turn acquired MCI for $6.7 billion. Where's that competition genie now?

When the Federal Communications Commission deregulated the telecom market in 1996, the intent was to compel local phone companies to open their networks to new players. That never quite happened. As the companies underwent consolidation, barriers to entry for new players grew steadily higher. Consumers saw fewer telecom companies providing a greater array of services.

And prices have continued to rise.

"Instead of the predicted nirvana of a free and open market with numerous options for consumers and flourishing technology, we have concentration and little marketplace choice," the Federal Communications Law Journal reported in 2006.

So Ma Bell is back. Federal regulators should waste no time in welcoming her home with new rules that address the shortcomings of our failed experiment in deregulation. And here's a place to start: a required "unbundling" of telecom products so that consumers can shop around for the best deal in equipment and service, without facing onerous contracts or fees.

We may only have a handful of telecom competitors left. But there's plenty we can do to ensure that they actually have to work for our business, rather than calling all the shots.